Intrinsic value of AutoNation, Inc. - AN

Previous Close

$42.52

  Intrinsic Value

$75.18

stock screener

  Rating & Target

str. buy

+77%

Previous close

$42.52

 
Intrinsic value

$75.18

 
Up/down potential

+77%

 
Rating

str. buy

We calculate the intrinsic value of AN stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 3.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  2.00
  2.30
  2.57
  2.81
  3.03
  3.23
  3.41
  3.57
  3.71
  3.84
  3.95
  4.06
  4.15
  4.24
  4.31
  4.38
  4.44
  4.50
  4.55
  4.59
  4.64
  4.67
  4.70
  4.73
  4.76
  4.78
  4.81
  4.83
  4.84
  4.86
Revenue, $m
  21,841
  22,344
  22,918
  23,563
  24,277
  25,061
  25,914
  26,838
  27,833
  28,901
  30,044
  31,264
  32,562
  33,942
  35,406
  36,957
  38,600
  40,337
  42,172
  44,110
  46,154
  48,310
  50,583
  52,978
  55,500
  58,155
  60,951
  63,892
  66,986
  70,241
Variable operating expenses, $m
  12,707
  12,995
  13,323
  13,692
  14,101
  14,549
  15,038
  15,566
  16,136
  16,747
  17,190
  17,887
  18,630
  19,420
  20,257
  21,145
  22,085
  23,079
  24,129
  25,237
  26,407
  27,641
  28,941
  30,311
  31,754
  33,274
  34,873
  36,556
  38,326
  40,188
Fixed operating expenses, $m
  8,598
  8,787
  8,981
  9,178
  9,380
  9,586
  9,797
  10,013
  10,233
  10,458
  10,688
  10,923
  11,164
  11,409
  11,660
  11,917
  12,179
  12,447
  12,721
  13,001
  13,287
  13,579
  13,878
  14,183
  14,495
  14,814
  15,140
  15,473
  15,813
  16,161
Total operating expenses, $m
  21,305
  21,782
  22,304
  22,870
  23,481
  24,135
  24,835
  25,579
  26,369
  27,205
  27,878
  28,810
  29,794
  30,829
  31,917
  33,062
  34,264
  35,526
  36,850
  38,238
  39,694
  41,220
  42,819
  44,494
  46,249
  48,088
  50,013
  52,029
  54,139
  56,349
Operating income, $m
  536
  562
  614
  692
  796
  925
  1,079
  1,259
  1,464
  1,696
  2,166
  2,453
  2,768
  3,113
  3,488
  3,895
  4,336
  4,811
  5,322
  5,871
  6,460
  7,090
  7,764
  8,483
  9,250
  10,068
  10,938
  11,863
  12,846
  13,891
EBITDA, $m
  886
  915
  971
  1,054
  1,162
  1,296
  1,456
  1,642
  1,853
  2,092
  2,358
  2,653
  2,976
  3,330
  3,715
  4,132
  4,583
  5,069
  5,592
  6,154
  6,756
  7,400
  8,088
  8,822
  9,606
  10,440
  11,328
  12,272
  13,275
  14,341
Interest expense (income), $m
  184
  244
  259
  276
  297
  319
  344
  371
  401
  433
  468
  505
  545
  588
  633
  681
  732
  786
  843
  904
  968
  1,036
  1,107
  1,182
  1,261
  1,345
  1,433
  1,525
  1,623
  1,725
  1,833
Earnings before tax, $m
  291
  303
  337
  396
  477
  581
  708
  858
  1,031
  1,228
  1,661
  1,908
  2,180
  2,480
  2,807
  3,163
  3,550
  3,968
  4,418
  4,904
  5,425
  5,984
  6,582
  7,222
  7,906
  8,635
  9,412
  10,240
  11,121
  12,058
Tax expense, $m
  79
  82
  91
  107
  129
  157
  191
  232
  278
  332
  448
  515
  589
  670
  758
  854
  958
  1,071
  1,193
  1,324
  1,465
  1,616
  1,777
  1,950
  2,135
  2,331
  2,541
  2,765
  3,003
  3,256
Net income, $m
  213
  221
  246
  289
  348
  424
  517
  626
  753
  897
  1,212
  1,393
  1,592
  1,810
  2,049
  2,309
  2,591
  2,896
  3,225
  3,580
  3,960
  4,368
  4,805
  5,272
  5,771
  6,303
  6,871
  7,475
  8,118
  8,802

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  10,877
  11,127
  11,413
  11,734
  12,090
  12,480
  12,905
  13,366
  13,861
  14,393
  14,962
  15,570
  16,216
  16,903
  17,632
  18,405
  19,223
  20,088
  21,002
  21,967
  22,985
  24,059
  25,191
  26,383
  27,639
  28,962
  30,354
  31,819
  33,360
  34,980
Adjusted assets (=assets-cash), $m
  10,877
  11,127
  11,413
  11,734
  12,090
  12,480
  12,905
  13,366
  13,861
  14,393
  14,962
  15,570
  16,216
  16,903
  17,632
  18,405
  19,223
  20,088
  21,002
  21,967
  22,985
  24,059
  25,191
  26,383
  27,639
  28,962
  30,354
  31,819
  33,360
  34,980
Revenue / Adjusted assets
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
  2.008
Average production assets, $m
  4,194
  4,290
  4,400
  4,524
  4,661
  4,812
  4,976
  5,153
  5,344
  5,549
  5,768
  6,003
  6,252
  6,517
  6,798
  7,096
  7,411
  7,745
  8,097
  8,469
  8,862
  9,276
  9,712
  10,172
  10,656
  11,166
  11,703
  12,267
  12,861
  13,486
Working capital, $m
  -153
  -156
  -160
  -165
  -170
  -175
  -181
  -188
  -195
  -202
  -210
  -219
  -228
  -238
  -248
  -259
  -270
  -282
  -295
  -309
  -323
  -338
  -354
  -371
  -389
  -407
  -427
  -447
  -469
  -492
Total debt, $m
  2,755
  2,941
  3,154
  3,393
  3,659
  3,949
  4,266
  4,609
  4,978
  5,374
  5,798
  6,251
  6,732
  7,244
  7,788
  8,363
  8,973
  9,617
  10,298
  11,017
  11,775
  12,575
  13,419
  14,307
  15,243
  16,228
  17,265
  18,356
  19,504
  20,712
Total liabilities, $m
  8,103
  8,290
  8,503
  8,742
  9,007
  9,298
  9,615
  9,957
  10,327
  10,723
  11,147
  11,599
  12,081
  12,593
  13,136
  13,712
  14,321
  14,966
  15,646
  16,365
  17,124
  17,924
  18,767
  19,656
  20,591
  21,577
  22,614
  23,705
  24,853
  26,060
Total equity, $m
  2,774
  2,837
  2,910
  2,992
  3,083
  3,183
  3,291
  3,408
  3,535
  3,670
  3,815
  3,970
  4,135
  4,310
  4,496
  4,693
  4,902
  5,122
  5,355
  5,602
  5,861
  6,135
  6,424
  6,728
  7,048
  7,385
  7,740
  8,114
  8,507
  8,920
Total liabilities and equity, $m
  10,877
  11,127
  11,413
  11,734
  12,090
  12,481
  12,906
  13,365
  13,862
  14,393
  14,962
  15,569
  16,216
  16,903
  17,632
  18,405
  19,223
  20,088
  21,001
  21,967
  22,985
  24,059
  25,191
  26,384
  27,639
  28,962
  30,354
  31,819
  33,360
  34,980
Debt-to-equity ratio
  0.990
  1.040
  1.080
  1.130
  1.190
  1.240
  1.300
  1.350
  1.410
  1.460
  1.520
  1.570
  1.630
  1.680
  1.730
  1.780
  1.830
  1.880
  1.920
  1.970
  2.010
  2.050
  2.090
  2.130
  2.160
  2.200
  2.230
  2.260
  2.290
  2.320
Adjusted equity ratio
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255
  0.255

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  213
  221
  246
  289
  348
  424
  517
  626
  753
  897
  1,212
  1,393
  1,592
  1,810
  2,049
  2,309
  2,591
  2,896
  3,225
  3,580
  3,960
  4,368
  4,805
  5,272
  5,771
  6,303
  6,871
  7,475
  8,118
  8,802
Depreciation, amort., depletion, $m
  351
  354
  358
  362
  366
  371
  377
  383
  389
  396
  192
  200
  208
  217
  227
  237
  247
  258
  270
  282
  295
  309
  324
  339
  355
  372
  390
  409
  429
  450
Funds from operations, $m
  563
  575
  604
  651
  714
  795
  894
  1,009
  1,142
  1,293
  1,405
  1,593
  1,800
  2,027
  2,276
  2,546
  2,838
  3,154
  3,495
  3,862
  4,255
  4,677
  5,129
  5,611
  6,126
  6,676
  7,261
  7,884
  8,547
  9,252
Change in working capital, $m
  -3
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
  -22
  -23
Cash from operations, $m
  566
  578
  608
  655
  719
  801
  899
  1,015
  1,149
  1,300
  1,413
  1,601
  1,809
  2,037
  2,286
  2,557
  2,850
  3,167
  3,508
  3,875
  4,270
  4,692
  5,145
  5,628
  6,144
  6,694
  7,281
  7,905
  8,569
  9,274
Maintenance CAPEX, $m
  -137
  -140
  -143
  -147
  -151
  -155
  -160
  -166
  -172
  -178
  -185
  -192
  -200
  -208
  -217
  -227
  -237
  -247
  -258
  -270
  -282
  -295
  -309
  -324
  -339
  -355
  -372
  -390
  -409
  -429
New CAPEX, $m
  -82
  -96
  -110
  -124
  -137
  -150
  -164
  -177
  -191
  -205
  -219
  -234
  -249
  -265
  -281
  -298
  -315
  -333
  -352
  -372
  -393
  -414
  -436
  -460
  -484
  -510
  -537
  -565
  -594
  -625
Cash from investing activities, $m
  -219
  -236
  -253
  -271
  -288
  -305
  -324
  -343
  -363
  -383
  -404
  -426
  -449
  -473
  -498
  -525
  -552
  -580
  -610
  -642
  -675
  -709
  -745
  -784
  -823
  -865
  -909
  -955
  -1,003
  -1,054
Free cash flow, $m
  347
  342
  355
  385
  431
  495
  575
  672
  786
  917
  1,008
  1,175
  1,360
  1,564
  1,788
  2,032
  2,298
  2,586
  2,898
  3,233
  3,595
  3,983
  4,399
  4,844
  5,321
  5,829
  6,372
  6,950
  7,566
  8,221
Issuance/(repayment) of debt, $m
  154
  186
  213
  239
  265
  291
  317
  343
  369
  396
  424
  452
  482
  512
  543
  576
  609
  644
  681
  719
  759
  800
  843
  888
  936
  985
  1,037
  1,091
  1,148
  1,208
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  154
  186
  213
  239
  265
  291
  317
  343
  369
  396
  424
  452
  482
  512
  543
  576
  609
  644
  681
  719
  759
  800
  843
  888
  936
  985
  1,037
  1,091
  1,148
  1,208
Total cash flow (excl. dividends), $m
  502
  528
  568
  624
  696
  786
  892
  1,015
  1,155
  1,313
  1,432
  1,627
  1,841
  2,076
  2,331
  2,608
  2,907
  3,231
  3,579
  3,952
  4,353
  4,783
  5,242
  5,733
  6,256
  6,814
  7,409
  8,041
  8,714
  9,428
Retained Cash Flow (-), $m
  -58
  -64
  -73
  -82
  -91
  -100
  -108
  -117
  -126
  -136
  -145
  -155
  -165
  -175
  -186
  -197
  -209
  -221
  -233
  -246
  -260
  -274
  -289
  -304
  -320
  -337
  -355
  -374
  -393
  -413
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  444
  465
  495
  542
  606
  686
  783
  898
  1,029
  1,177
  1,287
  1,472
  1,676
  1,900
  2,145
  2,411
  2,699
  3,010
  3,345
  3,706
  4,094
  4,509
  4,954
  5,429
  5,936
  6,477
  7,054
  7,668
  8,321
  9,015
Discount rate, %
  7.50
  7.88
  8.27
  8.68
  9.12
  9.57
  10.05
  10.55
  11.08
  11.63
  12.22
  12.83
  13.47
  14.14
  14.85
  15.59
  16.37
  17.19
  18.05
  18.95
  19.90
  20.89
  21.94
  23.04
  24.19
  25.40
  26.67
  28.00
  29.40
  30.87
PV of cash for distribution, $m
  413
  399
  390
  388
  392
  397
  401
  402
  400
  392
  362
  346
  324
  298
  269
  237
  205
  173
  143
  115
  91
  69
  52
  37
  26
  18
  12
  8
  5
  3
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

AutoNation, Inc. (AutoNation) is an automotive retailer in the United States. The Company offers a range of automotive products and services, including new vehicles, used vehicles, parts and service, which includes automotive repair and maintenance services, as well as wholesale parts and collision businesses, and automotive finance and insurance products, including vehicle service and other protection products, as well as the arranging of financing for vehicle purchases through third-party finance sources. It operates through three segments: Domestic, Import and Premium Luxury. Its Domestic segment consists of retail automotive franchises that sell new vehicles manufactured by General Motors, Ford and FCA US. The Import segment consists of retail automotive franchises that sell new vehicles manufactured primarily by Toyota, Honda and Nissan. The Premium Luxury segment consists of retail automotive franchises that sell new vehicles manufactured by Mercedes-Benz, BMW, Audi and Lexus.

FINANCIAL RATIOS  of  AutoNation, Inc. (AN)

Valuation Ratios
P/E Ratio 9.9
Price to Sales 0.2
Price to Book 1.9
Price to Tangible Book
Price to Cash Flow 8.3
Price to Free Cash Flow 15.8
Growth Rates
Sales Growth Rate 3.6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -1.2%
Cap. Spend. - 3 Yr. Gr. Rate 8.8%
Financial Strength
Quick Ratio 0
Current Ratio 0
LT Debt to Equity 69.7%
Total Debt to Equity 184.5%
Interest Coverage 5
Management Effectiveness
Return On Assets 5.6%
Ret/ On Assets - 3 Yr. Avg. 5.9%
Return On Total Capital 6.9%
Ret/ On T. Cap. - 3 Yr. Avg. 7.8%
Return On Equity 18.5%
Return On Equity - 3 Yr. Avg. 19.6%
Asset Turnover 2.2
Profitability Ratios
Gross Margin 15.3%
Gross Margin - 3 Yr. Avg. 15.5%
EBITDA Margin 4.8%
EBITDA Margin - 3 Yr. Avg. 4.8%
Operating Margin 4.1%
Oper. Margin - 3 Yr. Avg. 4.2%
Pre-Tax Margin 3.2%
Pre-Tax Margin - 3 Yr. Avg. 3.4%
Net Profit Margin 2%
Net Profit Margin - 3 Yr. Avg. 2.1%
Effective Tax Rate 38.5%
Eff/ Tax Rate - 3 Yr. Avg. 38.5%
Payout Ratio 0%

AN stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the AN stock intrinsic value calculation we used $21413 million for the last fiscal year's total revenue generated by AutoNation, Inc.. The default revenue input number comes from 0001 income statement of AutoNation, Inc.. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our AN stock valuation model: a) initial revenue growth rate of 2% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 7.5%, whose default value for AN is calculated based on our internal credit rating of AutoNation, Inc., is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of AutoNation, Inc..
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of AN stock the variable cost ratio is equal to 58.2%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $8413 million in the base year in the intrinsic value calculation for AN stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 9.4% for AutoNation, Inc..

Corporate tax rate of 27% is the nominal tax rate for AutoNation, Inc.. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the AN stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for AN are equal to 19.2%.

Life of production assets of 31.1 years is the average useful life of capital assets used in AutoNation, Inc. operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for AN is equal to -0.7%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $2716 million for AutoNation, Inc. - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 90.052 million for AutoNation, Inc. is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of AutoNation, Inc. at the current share price and the inputted number of shares is $3.8 billion.

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